The moral-hazard problem occurs when:
A) a consumer of insurance changes his or her behavior in such a way as to decrease the probability of a payoff.
B) a consumer of insurance changes his or her behavior in such a way as to increase the probability of a payoff.
C) insurance companies change their behaviors in such a way as to increase the probabilities of a payoff.
D) insurance companies change their behaviors in such a way as to decrease the probabilities of a payoff.
E) none of the above.

Question

Quizplus · Accepted Answer

The moral-hazard problem occurs when a consumer of insurance changes behavior in a way that increases the likelihood of a claim, often because the risk is borne by the insurer.

The Moral-Hazard Problem Occurs When